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Why do multinationals exist? The importance of knowledge and services

University of St. Gallen - ST GALLEN - 2014

We will study the importance of services in global value chains. We would especially like to understand an unexpected result which was recently highlighted in literature on world trade (Ramondo and al. 2013, Atalay and al. 2013.). Empirically speaking, the quantities of exchanged goods between multinationals and their foreign division are remarkably low. If not to facilitate the movement of physical goods along the supply chain, why do multinationals engage in vertical foreign direct investments? We suspect (along with Atalay and al. 2013) that the service transfer and other intangible goods is probably the explanation behind these unexpected results.